Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
Aimed at reversing an economic slowdown in Q2, the People’s Bank of China unexpectedly cut policy rates in July, a move coming as money market traders across China lowered their outlook on the economy to a 12 month low and viewed the central bank policy stance as the loosest since January 2019, the MNI China Liquidity survey showed.
The MNI China Economy Condition Index fell to 47.7 in July, the third consecutive monthly fall from May’s 65.5, the highest reading of 2024 so far.
“In Q2 the economy suffered from a slowdown in both goods and service consumption,” a senior analyst based in Shanghai told MNI, adding that further downward pressure lay ahead. China’s GDP rose 4.7% y/y in Q2, slowing from Q1’s 5.3% y/y with retail sales up 2.0% in June, the lowest reading so far this year.
In response, the People’s Bank of China cut its seven-day-repo rate by 10 basis points to 1.7% on Jul 22, the first cut since August last year, followed by a 20bp cut to its medium-term lending facility three days later. (SEE: MNI PBOC WATCH: PBOC Cuts 7-Day Rate As Reconfigures Framework)
The policy cuts came after the recent Third Plenum ensured official’s would take action to reach economic targets this year, with a Beijing trader telling MNI the move also emphasized the 7 seven-day-repo as the main monetary policy tool.
The MNI China PBOC Policy Bias Index fell to 19.8 this month, the lowest since January 2019, with 60.5% of traders noting an easing in central bank policy.
China’s Third Plenum reforms on granting municipalities full autonomy over housing market policy will stimulate housing demand, an advisor recently told MNI. (SEE: MNI: Further Easing To Boost Property After China’s 3rd Plenum)
LIQUIDITY EASING
The headline MNI China Liquidity Condition Index eased to 31.4 in July, slowing sharply from June’s 62.8, with 53.5% of local traders reporting easier conditions versus 14.0% last month. The higher the index reading, the tighter liquidity.
“The PBOC made two MLF injections of CNY100 billion and CNY200 billion, and used open market operations to release funds which eased anticipated tension from taxes due at month-end,” a trader in Hebei said.
The central bank also injected net CNY675.12 billion via its open market operations as of July 29, MNI calculated.
In the next three months, 53.5% of local traders saw the PBOC cutting the reserve requirement ratio while 11.6% commented no, and the remainder unsure.
“Liquidity demands in Q3 will be heavy given government bond issuance will accelerate and a huge amount of MLF will mature. Therefore, the central bank is likely to inject liquidity with another RRR cut,” a Shanghai trader said.
The MNI China 7-Day Repo Rate Index fell to 46.5 in July from 66.3 previous, with 44.2% predicting a slide of the curve due to ample liquidity, while 37.2% saw an increase.
The MNI China 10-year CGB Yield Index read 34.9, up from previous 30.2, marking the first increase in three months with 51.2% traders predicting the yield to remain stable, with 39.5% seeing a fall.
Click below for the full report:
MNI China Liquidity Index July 2024.pdf
For full database history and full report on the MNI China Liquidity Index™, please contact:sales@marketnews.com
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.